What are a marginal cost pricing rule and an average cost pricing rule? What are the disadvantages and advantages of each?
What will be an ideal response?
Natural monopolies can be regulated using a marginal cost pricing rule, so that the firm must set its price equal to its marginal cost, or by using an average cost pricing rule, so that the firm must set its price equal to its average total cost. The advantage of the marginal cost pricing rule is that the resulting output is efficient; the disadvantage is that the firm suffers an economic loss. The advantage of the average cost pricing rule is the firm earns zero economic profit; the disadvantage is that it produces an inefficient quantity of output.
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If a perfectly competitive firm is producing the short-run profit-maximizing quantity and is earning positive economic profits, the firm should anticipate ________.
A) the market equilibrium price to increase B) earning economic profits indefinitely C) new firms to enter the market D) the market supply to decrease
If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to:
A. 30. B. 0.333. C. 3. D. 0.30.
The marginal rate of transformation is the slope of the production possibility frontier.
Answer the following statement true (T) or false (F)
The demand for a necessity whose cost is a small portion of one's total income is:
A. perfectly price inelastic. B. perfectly price elastic. C. relatively price inelastic. D. relatively price elastic.